How a development became a housing debacle

Lending boom, hot sales drove New Tampa's Live Oak Preserve.

"A lot of food, a lot of dessert, a lot of liquor," said Fred Caldwell, who attended a party at Saddlebrook Resort. "They had a band. They had dancing."

Transeastern Homes also had 800 future houses and townhouses to sell, next to the Hillsborough-Pasco County line in booming New Tampa.

For a refundable deposit of $1,000, Caldwell and more than 4,000 other customers got the dinner, plus an early spot in line the next weekend to make a "priority selection" of a lot in Live Oak Preserve.

Eager buyers signed 251 contracts over three days. Caldwell and his wife got a townhouse on a pond for $139,000.

Four years later, the scenario sounds insane. But it marked an era when Florida's housing industry wound itself into a speculative feeding frenzy, then deflated. Live Oak, cursed by timing, could be the poster child.

Transeastern was destined for infamy.

Few would dispute that low mortgage-interest rates were the roots of the housing boom. For a decade they enhanced the buying power of every home shopper and renter.

Then came 2002.

"All of a sudden, you almost have to fight off the lenders," said Wayne Archer, director of the University of Florida's Bergstrom Center for Real Estate Studies. "It was a plausible market until the lenders went berserk."

People were buying houses as investments, not dwellings, said analyst Marvin Rose, who has tracked home building since 1979. The nation's builders were throwing up more homes than people needed. "We should have leveled off in '02, and we would have been okay," Rose said.

But as Transeastern flamboyantly showed, buying was not leveling off. It was speeding up.

In 2003, buyers closed on 13,134 new houses across Hillsborough, Pasco and Pinellas counties, according to Rose, a 19 percent increase over 2002.

'A big red flag'

Joe Berry moved from California to northwest Hillsborough County in 2004 for a job as a telecom consultant. Berry wanted to buy investment houses.

A Realtor steered him to Live Oak, and Berry focused on a model home. He could buy it, full of upgrades and furniture, and immediately get a tenant, Transeastern. In summer 2004, Berry bought four models.

His first lenders balked because the prices were higher than Live Oak's other houses. Transeastern suggested new lenders and new appraisers. Their numbers matched the deals perfectly.

"That should have been a big red flag," Berry said.

Transeastern has since been absorbed into Engle Homes, whose local president did not return calls for this article.

Problems with roofs

The Caldwells and another buyer hired home inspector Fred Cook of St. Petersburg to scrutinize their new townhouses.

On the two roofs, Cook peered under shingles. Each required six nails, but most had four or five. Worse, the nail gun had been overpressurized, sending some nailheads through the shingles.

"One roof was the worst new roof I'd ever seen," Cook said.

Overstretched builders "were hiring people off the street," said David Seidenberg, owner of Bayfair Properties, which did not build in Live Oak. "You didn't have your most qualified people doing the work."

In March 2005, Transeastern paid R.D. Markert Pools of New Port Richey $1.25-million in an oral agreementto install 50 swimming pools in Live Oak. According to a lawsuit, Markert didn't finish 40 of them. It filed for bankruptcy in October 2006.

A different pool builder was assigned to Chris Formico's Live Oak house. Formico found the pool being installed in the wrong place. "You could literally jump from my living room into the pool, through my sliding glass door," she said.

Zuriel Cabrera flew from New Jersey to close on his home and found the patio in the wrong place and two closet doors missing.

After he moved in, "the upstairs was freezing cold and the downstairs was, like 88 degrees," he said.

Temperatures were the reverse in the townhouses. The Caldwells discovered it took a day or two to cool off their upstairs.

"Everybody I talk to in the neighborhood says the same thing," Fred Caldwell said.

Home prices surge

In 2004, four hurricanes tore through Florida. New money lured workers and materials from the home-building industry to the renovation industry. Prices spiked for steel, fill dirt and PVC. Suppliers rationed lime rock.

So home prices surged again. Houses took longer to build. Investors could sign a contract to buy a new house and sell it at a fat profit when it was finished.

Home building experts wondered whether Transeastern's heralded sales dinner at Saddlebrook was backfiring, as the company was building its way through a backlog of early sales. "They were selling at '03 prices, but they had to deliver those homes at '05 costs," Rose said.

Yet Transeastern had escape routes. In 2004, the company added a clause to its sales contracts allowing it to raise the price before closing. If the increase was more than 3 percent, buyers could cancel and get their deposits back.

Buyers were hit with increases as high as $20,000. Sylvia Cassas was tapped for an extra $11,600. Transeastern wanted the house, she said.

Maysa Ashhab found the wrong color of tile in her house. Transeastern vowed to replace the tiles, but after Ashhab closed. She refused. Transeastern kept Ashhab's $17,000 deposit, she said. They sold the house to a San Diego couple for $31,124 more than Ashhab was due to pay, records show.

Cabrera, with the misplaced patio, was notified the night before closing that his mortgage issuer, partly owned by Transeastern, wanted to enlarge his down payment by $13,000, he said. Alternatively, Transeastern offered to refund his deposit, plus travel expenses between Tampa and New Jersey if he would give up the house. Instead, he paid.

"At that time ..." he said, "houses were selling right and left."

Transeastern had an extra incentive to thicken the cash flow. Its owners were negotiating a sale of the company.

On Aug. 1, 2005, a joint venture controlled by TOUSA Inc. of Hollywood, Fla., bought Transeastern in a debt-heavy deal valued at $857-million.

Almost simultaneously, the housing bubble sprang a leak.

Soon after the TOUSA sale, a Realtors' report showed the supply of existing homes for sale in the Tampa area was increasing for the first time in years.

Since then, TOUSA's stock price has plunged from a high of $29 to 13 cents. Shareholders are suing.

The market slowdown left Live Oak, like many new developments, with investor-owned homes begging for buyers or renters.

Weeds are rampant at Joe Berry's model homes, which he abandoned. Torn swimming pool screens flap in the breeze. Lenders are foreclosing. Of 10 former models, eight are empty and six are in default, said Realtor Karyn Glubis, who sold dozens of houses in Live Oak.